Canoo (GOEV -8.52%) has been one of the market's worst-performing electric vehicle stocks. It started trading at $22.75 a share on Dec. 22, 2020, after merging with a special purpose acquisition company (SPAC), but it's now worth about $1 a share.
Canoo's stock collapsed for four reasons. First, it hasn't shipped a single vehicle despite initially claiming it could produce up to 6,000 vehicles in 2022. Second, it abruptly ended its engineering partnership with Hyundai, which it had cited as a major long-term catalyst, in early 2021. Third, those broken promises triggered a Securities and Exchange Commission (SEC) investigation and a class action lawsuit. Lastly, Canoo continued to burn cash as its liquidity dried up.
Image source: Canoo.
But this July, Walmart (WMT 1.32%) tossed Canoo a lifeline by agreeing to buy 4,500 of its Lifestyle Delivery Vehicles (LDVs) with an option to purchase an additional 5,500 vehicles. Walmart also gained a warrant that gave it the option to buy more than a fifth of Canoo's outstanding shares at $2.15 per share.
That announcement briefly boosted Canoo's stock, but it subsequently surrendered those gains as investors questioned Canoo's ability to fulfill Walmart's massive order without running out of cash. However, Canoo's stock recently rallied amid four positive developments. Let's see if those four green flags indicate that Canoo's stock is finally bottoming out.
1. More orders beyond Walmart
During Canoo's third-quarter report on Nov. 9, it revealed its order book had more than doubled sequentially to over $2 billion -- including $750 million in binding orders, which should generate guaranteed revenue upon delivery.
Walmart's order accounted for some of that gain, but it also secured binding orders for 12,300 vehicles from the work rental van provider Kingbee and the fleet leasing company Zeeba. Those two companies also have the option of buying an additional 11,750 vehicles from Canoo.
The U.S. Army also started to test out Canoo's multi-purpose platform for developing various types of EVs earlier this year. Those tests could potentially pave the way for some big military and government contracts in the future.
2. Its liquidity hasn't run dry yet
Canoo had a mere $6.9 million in cash and equivalents at the end of the third quarter of 2022, compared to $224.7 million at the end of 2021. It was also shouldering $216.9 million in total liabilities at the end of the second quarter, which gave it an elevated debt-to-equity ratio of 0.95, and it posted a net loss of $407.5 million in the first nine months of 2022.
That's why the bears claimed Canoo would likely go bankrupt before it could start mass-producing its vehicles. But as of Sept. 30, Canoo still had access to an "at the market" offering that would enable it to raise up to $200 million in cash by selling new shares. It also secured an additional $30 million in financing in the form of a private investment in convertible notes in the third quarter, and it expects to receive additional state incentives for its plants in Oklahoma and Arkansas.
3. Ambitious production targets
Canoo is running on borrowed time and funds, but it believes it has sufficient liquidity to ramp up its production and deliver its first vehicles in the first half of 2023. It also believes its newly acquired plant in Oklahoma City can reach an annual run rate of 20,000 units by the end of next year.
Based on those estimates, analysts believe Canoo could generate $276 million in revenue next year. Canoo's enterprise value of $455 million values it at just 1.6 times that estimate. By comparison, Rivian Automotive (RIVN -2.21%), which is providing electric delivery vans to Amazon, trades at 3 times next year's sales. However, Rivian deserves a higher valuation than Canoo because it's already shipped thousands of vehicles.
4. Its CEO is buying more shares
On Nov. 21, CEO Tony Aquila bought about $10 million in Canoo's shares at an average price of $1.11, with half of the purchase made directly and the other half made through an LLC he manages. That purchase boosts Aquila's stake to more than 19%, so he seems to believe Canoo can finally ramp up its production and deliver its first vehicles.
But is Canoo's stock worth buying?
Canoo isn't down for the count yet, and it seems to be in better shape than other struggling EV makers like Nikola. However, I'm not convinced that it can successfully ramp up its production as rising interest rates choke off the market's liquidity, other EV makers saturate the market, and automakers continue to struggle with supply chain disruptions.
Simply put, I wouldn't invest in Canoo until it actually delivers its first vehicle. For now, it's another speculative, SPAC-backed EV maker that is burning cash at an alarming rate as interest rates continue to rise.
